- re-tax result rises to € 653 million, Common Equity Tier 1 capital ratio at 13.1 per cent
- Return on equity stands at 8.7 per cent with slightly lower costs and increased risk provisioning for ships
- The development of the business model is progressing
In financial year 2015 NORD/LB Norddeutsche Landesbank achieved earnings before taxes of € 653 million, more than doubling the prior year’s result (€ 276 million). The same applies to the consolidated profit, which totalled € 518 million (prior year: € 205 million).
“We are satisfied with this result, especially considering the fact that the shipping crisis once again produced a strong headwind for us over the course of the year,” explained the Chairman of the Managing Board of NORD/LB, Dr. Gunter Dunkel. “However, our business model is sufficiently robust that the recent challenges on the shipping markets were more than cushioned by developments in our other areas of business segments. We will continue to further develop this business model.”
Alongside the positive business performance, one-off effects and positive market developments boosted profits by roughly € 200 million. In this context for instance disposals of investments, income from prepayment penalties in the Real Estate business and effects from interest-rate curves in hedge accounting had an effect. According to Dr. Dunkel, this “underpinned the overall positive trend for the year”.
That notwithstanding, the business results were an indicator “that we are making good progress with the further development of our business model,” as Dr. Dunkel highlighted. NORD/LB is also on track for the targeted reduction of the total assets and risk-weighted assets, as well as for the strengthening of its capital ratios and the reduction of its costs.
Net interest income remained stable despite the reduction in total assets, and net commission income and the fair-value result rose
Despite the continued low level of interest rates, net interest income remained stable at € 1.974 billion (previous year: € 1.985 billion). “Given the fact that we purposely reduced our total assets by € 16.6 billion over the last year, this is a decidedly good figure,” Dr. Dunkel stated. Net allocations to loan loss provisions were reduced to € 698 million (€ 735 million), mainly due to the shipping crisis, which intensified again in the second half of the year. While the net allocation to specific valuation allowances totalled € 726 million, a net reversal of € 67 million was performed for general valuation allowances. “We are prepared for substantial risk provisioning being required for ships in the coming quarters. The shipping crisis is far from being overcome,” said Dr. Dunkel.
Net commission income rose significantly to € 234 million (€ 185 million). Alongside earnings from the securities syndicate business, from the initiation of loan business and from the brokerage business, special effects such as the transfer of the securities deposit business to LBBW (€ 16 million) had an impact.
The fair-value result (including hedge accounting) rose to € 280 million (€ 130 million). Although the increased euro interest rate resulted in valuation losses in the trading profit/loss, it also generated valuation earnings that had a positive effect on the fair-value option. The divergence of different interest rate curves resulted in a significantly increased profit/loss from hedge accounting. The profit/loss from financial assets rose to € 72 million (€ -3 million) which is due inter alia to special effects from the sale of two non-strategic investments. The profit/loss from investments accounted for using the equity method was € 8 million (€ -37 million).
Falling costs, rising capital ratios
Administrative expenses fell by € 11 million to € 1.114 billion (€ 1.125 billion). An increase of around € 25 million in expenses due to pay rises and the obligation from 2015 to contribute to the security reserve for Landesbanks was more than compensated for by savings achieved in the efficiency improvement programme launched in 2011.
Other operating profit/loss totalled € -97 million (€ -75 million). This includes expenditure of around € 52 million for the EU bank levy. Reorganisation expenses totalled € -6 million (€ -48 million). Income taxes in the amount of € 135 million (€ 71 million) are also reported in the income statement in accordance with IFRS.
The Cost-Income Ratio improved year-on-year at 46.4 per cent (51.4 per cent), while the Return on Equity rose from 3.8 per cent to 8.7 per cent.
Total assets were reduced again to € 181.0 billion as at the end of 2015 (end of 2014: € 197.6 billion). Despite this purposeful reduction by around 8 per cent, lending business with customers was maintained at a high level of € 107.9 billion (€ 108.2 billion). The total risk exposure amount (formerly risk-weighted assets) was reduced again and is now € 63.7 billion (€ 69.2 billion).
The Common Equity Tier 1 capital ratio rose to 13.1 per cent (10.7 per cent), while the total regulatory capital ratio rose to 16.7 per cent (13.2 per cent). The leverage ratio improved to 4.3 per cent (3.5 per cent).
Improvement in profit/loss in all business segments apart from Ship Customers
Whilst the global shipping crisis continued to have a negative impact on Ship Finance in 2015, all of the Bank’s other fields of business improved their profit/loss. In the business of SME Corporate Customers the Bank experienced significant increases, which activities were not merely restricted to its core territory in northern Germany. With offices in Düsseldorf, Stuttgart and Munich, it operates across Germany. The fields of Agricultural Banking and Housing, which belong to the Corporate Customers segment, developed positively in their nationwide business.
In the Energy and Infrastructure Customers segment, NORD/LB concentrated on the structuring and arrangement of sophisticated national and international project finance. The Bank was able to further expand its position as one of the leading financers of renewable energies in the markets of Germany, France, UK and Ireland. The entry into the Italian market that started in 2014 was continued with several successful financing agreements in the areas of solar and wind energy. Additionally, a new market was opened up in Finland with the conclusion of an agreement to finance a wind park. An important milestone in the Asian region was the successful structuring and financing of a solar project in Japan. Institutional investors took on parts of the credit risks in a range of transactions.
In Ship Customers NORD/LB has opted for a transformation of its shipping portfolio by means of active risk management and a targeted reduction of the portfolio, whereby further attractive new business opportunities continued to be exploited. The Bank is pursuing an active remarketing strategy in its existing business, which is affected by the crisis, in order to place commitments that are at risk of default back on to a solid footing. With the Crystal Ocean Advisors joint venture, set up in February 2016, the Bank will also provide its expertise to other market participants in future in collaboration with the Offen Group and Caplantic GmbH.
The focus in Aircraft Customers is on the object-based financing of passenger aircraft produced by well-known manufacturers. Due to its strong performance in past cycles, Aircraft Finance is enjoying growing interest from investors. Therefore, NORD/LB takes over the lead arranger function of larger loan facilities more often, in addition to its role as a lender. Against this background, commission-based advisory services are playing a greater role in NORD/LB’s aircraft financing. With the first helicopter finance transactions in the Bank’s history, NORD/LB has also opened up a new asset class over recent years.
A wide range of attractive contracts were closed in the Real Estate Banking Customers segment, which is concentrated at the wholly-owned subsidiary Deutsche Hypothekenbank within the NORD/LB Group. The substantial year-on-year rise of earnings before taxes to € 195 million was also a result of net reversals in risk provisioning. Risks were increasingly outsourced as regards new finance transactions.
Significant drivers of the positive earnings performance in the capital market business (Business segment: Markets) were customer business in traditional capital market products and near-capital-market products with institutional customers. Despite the difficult market environment, NORD/LB was again able to demonstrate its placement competence both for its own and third-party issues. In September 2015 NORD/LB successfully issued an senior unsecured euro benchmark bond with a three-year term. As an arranger in the German Pfandbrief market, NORD/LB extended its position in the primary market and was among the most successful issuers.
The Private and Commercial Customers segment is mainly defined by Braunschweigische Landessparkasse, which has restructured its sales and branch network. Setting up a new branch network enables advisory competence to be improved by concentrating advisory capacity. The establishment of a Customer Service Centre (telephone branch) and the online branch addressed customer needs for greater digitalisation and enhanced availability.
Credit-asset management, Fintech joint venture, Asia strategy
According to Dr. Dunkel, a key pillar of NORD/LB’s strategy is to develop further into an innovative credit-asset manager. “Tailor-made products now mean that institutional investors can invest in our lending business or participate in credit risks. This has enabled us to create a new, attractive opportunity for investors, and at the same time we can take pressure off our capital base whilst also strengthening it,” said Dr. Dunkel. He noted that the Bank had taken a large step forward in this respect during the previous year. In this way the loan portfolio transaction “Northvest” was boosted by € 5.1 billion to € 14.7 billion and placed with institutional investors.
Dr. Dunkel also highlighted the fact that NORD/LB was facing up to the challenge posed to the financial industry by digitalisation. Last year, the Bank became involved in the financing of innovative Fintech start-ups by way of a joint venture with Dieter von Holtzbrinck Ventures. “What we are interested in is tackling this challenge intelligently. We want to benefit from new, good business models – even if we didn’t come up with them,” said Dr. Dunkel.
NORD/LB is also increasingly providing its expertise in selected fields of business in Asia via its branches in Singapore and Shanghai. The Singapore branch has been further expanded as a competence centre for lending and finance business with German corporate customers operating in Asia. Additionally, a new team for Aircraft Finance has been set up. Furthermore, the Bank has increased its operations in Ship Finance and projects in the area of Renewable Energies in Singapore and Shanghai. “Today NORD/LB is the leading German Landesbank in Asia,” Dr. Dunkel pointed out.
“Last year NORD/LB celebrated its 250th anniversary,” Dr. Dunkel explained. “Looking back over our history we saw that we have consistently tightened up our business model and realigned it to the future. That is what we still strive for today.”
Cautious outlook: conservative expectation of income
NORD/LB has a cautious outlook for the financial year 2016. “This year has certain challenges in store. Tighter regulatory stipulations, increasingly intensive competition, the continuation of low interest rates and the increasing digitalisation of the finance sector will continue to demand our attention. Added to this is the ongoing shipping crisis as a result of which we expect that risk provisioning will also be negatively impacted to a large extent this year. However, our business model puts us in a strong position to face these challenges, and we will continue to be able to cushion the depressive effects from the shipping crisis through the other fields of business,” stressed Dr. Dunkel. “We intend to reduce the shipping portfolio from its current volume of €19.0 billion by outsourcing risks and targeted reduction to a future volume of some € 12 to 14 billion. This will not be possible without additional negative impact on earnings. Nonetheless, Ship Finance is set to remain a key component of our business model in future.”
“Our expectations regarding income for the current financial year are just like our risk policy: decidedly conservative,” explained Dr. Dunkel. The results of the financial year 2015 are unlikely to be repeated in the current year. “On the one hand it’s almost impossible to predict further developments on the shipping markets. The only certainty is that things will remain difficult. On the other, we can’t rely on one-off effects giving us as much of a tailwind as they did last year. We therefore assume that our results for 2016 will be below those seen in 2015.”
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Consolidated income statement for fiscal year 2015
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NORD/LB reports
About NORD/LB
With total assets of € 181 billion, NORD/LB Norddeutsche Landesbank is a leading German business bank. Its core business segments include structured financing in the energy and infrastructure sector, ship and aircraft financing, corporate customers business, commercial real estate financing, capital market business and private and commercial customers. The Bank has headquarters in Hanover, Braunschweig and Magdeburg as well as branches in Düsseldorf, Hamburg, Munich, Schwerin and Stuttgart. NORD/LB is represented outside of Germany by a Pfandbriefbank (NORD/LB Covered Bond Bank) in Luxembourg and branches in London, New York, Singapore and Shanghai.
